Analysts said that nickel's stellar gains have come to a sudden stop on concerns the global manufacturing recovery may be entering a cooler phase, but the same fundamentals that underpinned its rise might also help it rebound.
Since peaking in late April, prices on the London Metal Exchange have fallen nearly 18% to USD 22,550 per tonne. In just the past week, nickel for delivery in three months has sunk 13%.
That's taken the shine off what has been the best performing major metal this year. Even with the sell off, prices have gained 20% since the beginning of the year, compared to a roughly 10% advance for gold and losses for metals such as copper, lead and zinc.
Nickel has been a victim of its own success, analysts say. Its rally was based on fundamentally sound reasons such as increased demand and concerns about supplies. But financial investors' interest in the metal also played a role.
Demand from investors for an exchange traded product backed by nickel had pushed prices up more than double in the past year far too high, some say. In addition, the recent gains made it all the more vulnerable for a correction in commodities on worries that a sovereign debt crisis in the euro zone and a slowdown in China could apply the brakes on the global recovery and, with it, demand for raw materials.
Nickel is mostly used to make stainless steel resistant to corrosion. Demand hinges higher spending on appliances, cutlery and other household items that use stainless steel, as well as construction and transportation activity.
Nickel climbed for much of this year on expectations of growing demand and tighter supply as well as fresh investor interest in the metal. Prices also had been heavily hit by the financial crisis and had farther to go to catch up.
